Your Wallet Or Your Politics, Choose Wisely

| About: SPDR S&P (SPY)


How committed is the developed world to ushering in a new political reality?

Committed enough to sacrifice their wallets?

Priorities, priorities. It's ideology and frustration versus economic reality.

Ok, so risk couldn't catch a bid on Monday and if you thought it would, well then I don't know what you were thinking.

It was obvious a UK "leave" vote wasn't priced in going into the weekend. Not by credit. Not by stocks. Not by nothing (bad grammar).

Everyone went home and thought about things, and despite a largely positive Monday session in Asia, things went to pieces in Europe and the malaise spilled over onto Wall Street (NYSEARCA:SPY). Now we're back in the red for the year.

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But you know, we can't cry over spilt milk (or tea, as it were). Soldier on we must and soldier on we will.

Or will we? As I mentioned last week, there really aren't any good hiding places nowadays. I'm going to spare you the characteristic Heisenberg lengthy (and perhaps sometimes painful) analysis here and just make a couple of quick points as we all attempt to navigate the veritable minefield ahead in the wake of S&P's downgrade of the UK. Before we dive in, here are some key data points, make of them what you will:

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First of all, globally speaking, earnings are terrible and valuations aren't even close to compelling. That's not a subjective evaluation. It's a fact:

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(Charts: Goldman)

So that's enlightening. And discouraging.

Now let's see if we can get a preview of what's coming in terms of the outflows that would be triggered from an "unexpected" political shift in the US (I'll let you figure out what that means). Have a look at the UK policy uncertainty index graphed with flows to European equity funds by US investors:

(Chart: Goldman)

You can expect reciprocity from international investors in November if Americans decide to oust all vestiges of the "establishment" from the White House.

And lastly, here's a look at Goldman's projections for Brexit reverberation:

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(Charts: Goldman)

Right. So slower growth, tighter financial conditions, a stronger deflationary impulse, and an easing bias.


Remember, sometimes the "right" thing to do leads invariably to painful outcomes for those who choose the righteous path. You know, it's the whole "why do bad things happen to good people" paradox.

You can bemoan the establishment all you want, just the same as you can hold the Brexit vote up as a shining example of a world that's finally throwing off the shackles of an oppressive, hapless political status quo (and make no mistake, they are at times oppressive and hapless).

But at the end of the day, you may have to face a rather unpalatable choice: save your wallet, or make a political statement.

Choose wisely.

(A bit of British humor; someone will get it)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.